Using SOFI in manager selection
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mallowstreet launched SOFI this summer. Originally designed to help asset managers save time, check messaging, improve delivery, monitor performance and capture questions, it is specifically trained in institutional asset management. This makes it a helpful tool for investors, including pension funds and insurance firms. Here are some ideas on using SOFI AI to improve the manager screening process.
Keep track of mandate searches and the presenting managers
At each asset allocation review, your investment team may make changes to one or multiple parts of the portfolio. When looking for a new manager, you would typically specify a mandate based on an asset class and discuss your requirements with an investment consultant. Your consultant will then work with you to put together a shortlist of managers to meet and evaluate for each mandate.
The presentations for each mandate can be organised in different ‘campaigns’ (i.e. folders) based on the asset class and/or specific strategy you are looking for.
This allows you to keep all the presentations on each mandate together – and start comparing the managers.
Compare presentations across key lenses and identify areas for further investigation
There is a lot to track in due diligence meetings, but there are six key topics that cannot be avoided:
- The level of risk when investing in the strategy being discussed
- Past performance and what levels of return to expect
- How liquid the strategy and its underlying holdings are
- What the time horizon for the strategy is
- What the strategy’s ESG credentials are – and how the manager is approaching environmental, social and governance risks and opportunities
- What role the strategy can play in an institutional portfolio – for example, whether it is more of a growth or matching asset
How each manager presents on these key lenses is crucial to whether they would make a good fit for the mandate.
When searching for a government bonds manager, the underlying assets would typically be liquid long-term investments because you may use them to partially offset long-term liability risk – especially if you are a pension scheme or insurer. By setting the ‘message I want to land’ to liquid and medium to long-term, you can reflect the specifications of the mandate.
Comparing the two presenting managers above, they roughly align with your goal to find a liquid strategy with a medium to long-term horizon. However, ‘Anon Asset Management’ have spent significantly more time than their competitor covering these two areas. This may be something to consider as you evaluate the investment process followed by each manager.
However, as you can see below, both managers are out of line with what you expected to hear on risk and return. You may be looking for a low-risk low-return government bond strategy to match your liabilities, however both managers came across as higher risk and return. Did they spend too much time reflecting on the recent volatility in government bond markets, rather than explaining how they are managing this risk? Or are these two strategies simply a poor fit? This should be investigated in more detail.
Use the checklist to understand the investment process deeper
Due diligence goes far beyond the six fundamental lenses (risk, return, liquidity, time horizon, ESG and portfolio fit). You can use the SOFI checklist for each mandate to keep track of how the presenting managers address key questions about their investment process.
Interestingly, looking at the checklist for this manager search, both managers addressed the current high-risk environment. This was a conscious choice, either of their own or on your request. This partially explains the misalignment on the risk lens highlighted above. However, neither manager covered the impact of geopolitics – which may prompt you to follow up further.
Keep track of how managers address your concerns
SOFI also tracks the questions your analysts ask of each manager. In the example below, we can see that one of the managers was probed even further on the topics of duration risk, liability hedging and correlations in a high-risk environment.
However, the manager did not answer three of these questions in sufficient detail. This may be helpful for the team of analysts after the meeting is done. SOFI tracks this detail so the analysts can come back to it when they need to, freeing them up to focus on being present, ask the right questions and deeply understand the presenting managers.
However, the manager did not answer three of these questions in sufficient detail. This may be helpful for the team of analysts after the meeting is done. SOFI tracks this detail so the analysts can come back to it when they need to, freeing them up to focus on being present, ask the right questions and deeply understand the presenting managers.
What tools are you using to free up analysts and improve the manager screening process?
- What’s in a presentation – and can you afford an 8-second distraction?
- AI as a copilot
- My first two months using SOFI
